VC confidence up despite tech IPO busts

SAN FRANCISCO – An index of venture capital confidence rose slightly during the third quarter despite VC-backed IPO busts during the period like Facebook and Zynga.

The Silicon Valley Venture Capitalist Confidence Index, a quarterly survey of 31 Bay Area VCs launched in 2004, rose to 3.53 in the third quarter on a five-point scale (with “5” indicating highest confidence). The index was 3.47 in the previous quarter.

VCs responding to the to the Q3 survey “pointed to concerns over stubbornly high valuations despite recent venture-backed public market disappointments such as Facebook, Zynga and Groupon, and despite the overall performance of the venture asset class,” Mark Cannice, a University of San Francisco management professor and survey compiler, said in releasing the results.

Despite continuing concerns about the global economy, the pace of the U.S. economic recovery and upcoming U.S. elections, Cannice said some VCs expressed optimism that “positive technology trends [will] continue” and that Silicon Valley would benefit from those trends. Among them are mobile technologies, cloud computing and so-called “big data.”

“The IPO market remains open for high quality issuers like Palo Alto Networks and the strategic exit environment remains healthy as legacy vendors put their cash to work acquiring innovation,” Jeb Miller of Jafco Ventures (Palo Alto) said in response to the VC survey.

Silicon Valley VCs were somewhat more optimistic during Q3, according to a regional confidence index.

Other survey respondents cited emerging opportunities as smart grid and renewable energy technologies are rolled out. California is likely to lead most of the nation in deploying those technologies.

Still, some respondents worried that despite growing innovation and entrepreneurship, the underlying ecosystem remains strained. One respondent warned of continuing engineering shortages along with a lack of affordable housing in the Bay Area. The VC executive also cited a “generally dysfunctional approach to California’s fiscal and regulatory challenges.”

The survey found that VCs are also worried about a lack of venture funding for health care technology startups. One respondent predicted that the lack of capital for medical technology “will get worse before [it] gets better.”

The "capital lite" model of creating the next Google obviously isn't working.
The VCs need to get burned at a few more of these Farcebooks before they realize dotcoms are a scam and that you need to actually build and ship something tangible, that people need, that makes business sense, in order to generate money. Shipping a real product creates revenue, not clicks. Revenue creates valuation, not hype and Farcebook is going to be the posterchild for this, IMO.
Google was an exception, not an example, of click-based revenue, and this is where many VCs have cranio-anal transposition. Groupon? Gimme a break.
There are only so many times you touch a hot stove before you stop doing it.

Good point @elPresidente...I regret this focus on ads and clicks myself...but I think Google and Facebook understand that...Google has started building the hardware, some very innovative like Google glasses, Microsoft is getting its surface out, Oracle wants to have the best processor in the world, and Facebook will be eventually be selling cell phones...so this is not as bad as you say...the strategy is to get in at the software level, and when you get successful, start building hardware to support it...and yes, I hate Groupon deals but my daughter uses it all the time saving 70-80% of her money on her purchases...Kris

I prefer to look at Google and facebook as one of the TV broadcasters. They provide a channel for people to connect. They may certain contents. Or they can buy contents from production company. What's better that Google and Facebook do is "Crowdsourcing". People voluntarily provide content for them and share them with their group of friends. The net will continue evolve. Who knows! Facebook may become valuable company in the near future.

Health care tech startups might be more attractive were their return windows tighter. The device-approval process is slow, to be sure. It shouldn't be tossed overboard of course, because there are safety issues that need to be considered, but more of alignment between regulatory approval and the pace of technological change would be helpfu.